Income Tax proposals of Budget 2024

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The entire universe is pervaded by the Divine. One should enjoy life by renouncing attachment and desires. One should not covet or be greedy for the wealth or possessions of others.

These aren’t my words (I wish I was that learned); they are from the Isha Upanishad. Also, I’ve not selected them for the occasion; they are from the Economic Survey of 2024, released by the Government of India. Could the last line from the verse be a subtle advise to the taxman??

While the Economic Survey has much to unpack (& I’ve tried to do so in my conversation with Vishal Krishna releasing tomorrow!), the subject of this article is the income tax recommendation of Budget 2024. The focus of the Finance Minister has been to simplify the tax laws; in fact, she goes on to announce a comprehensive review of the Income Tax Act. The exercise will endeavour to simplify the 1961 law, and make it “concise, lucid, easy to read and understand” - these traits are as alien to tax laws as running marathons are to snails. But the vision is laudable.?

Interestingly the finance minister announced the income tax changes after the indirect tax changes. Naturally, when something ‘unnatural’ like this happens, your mind starts racing - what if, like Muhammad Ali, the final punch was kept for the very end. Would a new surcharge be announced? What about Pillar II? Would there be a new wealth tax? Would there… well, there is no end to one’s imagination.

Thankfully, the changes were more measured (except a few, which are bizarre!). Here are the recommendations of Budget 2024.

? Income tax rates for individuals has largely remained unchanged. The finance minister continued to nudge taxpayers to opt the new regime (i.e. without most exemptions, deductions, but with the benefit of a lower tax rate) and has offered two new sops -

• Standard deduction for salaried taxpayers has been increased from Rs. 50,000 to Rs. 75,000,
• The upper limits of two tax slabs - 5% and 10% - have been increased by a lakh each.
• There have been no changes to the tax rates under the old regime.

? Domestic corporate tax rates and those for firms/LLPs have also remained unchanged. Foreign companies shall hereafter benefit from a lower tax rate of 35%, down from 40%.

? Withholding Tax Provisions, i.e. tax deducted/collected at source, have been rationalised, the major changes being

• Rate of withholding tax reduced in the following cases (i) Commission / brokerage - from 5% to 2%, (ii) Payment of rent by individuals - from 5% to 2%, (iii) Payment of sums by e-commerce operators to participants - 1% to 0.1%
• A clarification has been made with regard to payments subject to withholding tax u/s 194C and those under 194J, to the effect that payments covered under 194J do not constitute “work” u/s 194C.
• A new provision 194T has been inserted to bring payments made to partners of firms under the withholding tax net. Tax shall be deducted at 10% on such payments if the amount exceeds Rs. 20,000 in a year
• The aggregate sale consideration, in connection with the sale of an immovable property involving multiple sellers, shall determine whether tax has to be deducted or otherwise. If the total consideration is in excess of Rs. 50 Lakhs, tax shall be deducted irrespective of the consideration payable to each of the sellers.
• Salaried employees will get credit of TCS at the time of calculation of TDS on salary. Further, TCS paid on account of a minor can ben claimed by the parent, provided that the income of the minor is clubbed with the parent.

? The limit for computation of remuneration of partners has been graciously increased - the new limit shall be Rs. 300,000 on the first Rs. 600,000 of book-profits (Rs. 150,000 and Rs. 300,000 earlier).

? After a long crusade, ‘Angel Tax’ has been finally abolished. Startups can finally celebrate! Not just startups, the entire provision has been struck off. The golden words being “Provided also that the provisions of this clause shall not apply on or after the 1st? day of April, 2025”? - the abolition is retroactive from 1 Apr 2024.

? Capital gains

• So much has changed that the capital gains tax law is unrecognisable from before! The period of holding to determine the nature of capital asset, and the rate of tax have both undergone significant changes.
• First, the period of holding. Budget 2024 does away with three categories; instead, we only have two now, 12 months and 24 months. The 12 month holding period is applicable to listed securities. All other assets would be subjected to a 24 month holding period.
• The rate of short term capital gains tax has been changed as follows: (i) Listed equity, equity-oriented mutual funds - 20% (up from 15%), (ii) All other assets - same as earlier,
• The rate of long term capital gains tax has been changed as follows: (i) Listed equity, equity-oriented mutual funds, bonds - 12.5% (up from 10%), (ii) Unlisted securities - 12.5% (down from 20%), and (iii) Immovable property, bullion etc. - 12.5% (down from 20%)
• It is important to note that no benefit of indexation will be provided. This change might impact real estate transactions significantly. The law is effective immediately, i.e. with effect from 23rd July 2024. Good luck if your appointment to register the sale of an immovable property has been rescheduled by a day!
• It is also important to note that the benefit of indexation shall indirectly still be available on assets acquired prior to 2001, as the definition of Cost of Acquisition has remained unchanged.

? Buy-back taxation

• The impact of tax has been shifted from the company to the shareholder. Consideration received on buy back of shares shall be treated at par with dividends, and shall be subject to tax now in the hands of the recipient shareholder.?
• What’s strange though is that the tax is payable on the full consideration received, without taking into account the cost of acquisition of shares. Such cost shall be treated as a capital loss, which can be carried forward to subsequent years per rules applicable to capital losses.?
• The amendment is effective from 1 October 2024, post which restructuring capital tables will be a messy & expensive affair!

Other changes include the abolition of the 2% Equalistion levy (& the connected exemption u/s 10), clarification regarding taxation of residential house property (no longer permitted under the head Business income), and several provisions that deal with assessment / reassessment rules, including the introduction of a new Vivaad se Vishwas Scheme.?

At BCL India , we will continue to unpack Budget 2024 in the coming days. Also, do look out for analysis posted by ASPR & Co. , especially on the impact of the Budget on GST. Stay tuned for more updates!

Link to presentation on Economic Survey 2024, and other Budget proposals.